CBSE Class 12 Accountancy Share Capital Worksheet Set 03

Question: A Ltd forfeited 300 shares of ₹ 10 each, fully called-up, held by B for non-payment of allotment money of ₹ 3 per equity share and final call money of ₹ 4 per share. Out of these, 250 shares were re-issued to C for a total payment of ₹ 1,800. Calculate the amount to be transferred to capital reserve account?
a) ₹ 750
b) ₹ 50
c) ₹ 700
d) ₹ 900
Answer: b

Question: Identify the correct sequence of share capital to be shown in notes to accounts as per Schedule III of Companies Act, 2013.
(i) Issued capital
(ii) Authorised capital
(iii) Subscribed capital
a) (i), (ii), (iii)
b) (ii), (iii), (i)
c) (iii), (ii), (i)
d) (ii), (i), (iii)
Answer: d

Question: Neton Ltd has in its memorandum of association, capital clause stating that it is formed with 75,000 equity shares of ₹ 100 each. The company has issued the entire shares and the public has also subscribed and paid up for the full amount on application itself. What will be the subscribed capital?
a) ₹ 75,00,000
b) ₹ 10,00,000
c) ₹ 1,00,000
d) ₹ 7,50,000
Answer: a

Question: Total capital specified in capital clause is ₹ 50,00,000 which is divided in 35,000 equity shares of ₹ 100 each and 15,000, 10% preference shares of ₹ 100 each. The company issued 10,000 equity shares and 5,000 preference shares. The public subscribed for 9,000 equity shares and 4,500 preference shares out of the issued shares. What will be the subscribed capital amount?
a) ₹ 50,00,000
b) ₹ 50,000
c) ₹ 9,00,000
d) ₹ 13,50,000
Answer: d

Question: Which of the following statement(s) is/are correct?
(i) Capital to be called-up only on liquidation of the company is called reserve capital.
(ii) Shares cannot be issued at discount.
(iii) The liability of every shareholder of the company is unlimited.
(iv) When application received from public is more than the number of shares offered, then it is a situation of under subscription.
a) (i) and (ii)
b) (ii) and (iii)
c) (i), (iii) and (iv)
d) Only (ii)
Answer: a

Question: Assertion (A) Preliminary expenses are not shown in balance sheet.
Reason (R) Preliminary expenses are written-off in the same year.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true, but Reason (R) is false
d) Assertion (A) is false, but Reason (R) is true
Answer: a

CASE STUDY BASED QUESTIONS 

A company issued 25,000 equity shares of Rs.10 each at a premium of Rs.3 per share payable as follows:
On Application Rs.2 On Allotment Rs.5(including premium) On First call Rs.1 Balance on final call
The company received Rs. 1,00,000 towards application money. Of which 10000 applications are rejected and the remaining applications are adjusted towards allotment. A shareholder holding 3000 shares paid the first call and final call along with allotment money.

Question: How many applications are received by the company?
a) 25,000
b) 50,000
c) 75,000
d) 1,00,000
Answer: b

Question: What journal entry will you pass for excess application rejected?
a) Share application a/c Dr to Bank
b) Share application a/c Dr to Share allotment
c) Share application a/c Dr to Share capital
d) Share application a/c Dr to Share first call
Answer: a

Question: After allotment how much net allotment money is received by the company?
a) 1,13,000
b) 1,25,000
c) 1,40,000
d) 95,000
Answer: a

Question: How much application money is adjusted towards allotment?
a) 30,000
b) 40,000
c) 15,000
d) 10,000
Answer: a

Raghuram Limited company has an Authorized capital of 1, 00,000 shares of Rs.10 each as per the Capital clause of the Memorandum of Association of the company.
The company issued 5,000 shares to the promoters of the company in consideration for their services.
The company further issued 10,000 shares to the vendors for the purchase of Machinery costing Rs.1, 20,000. The remaining shares are issued at Rs.10 each at a premium of Rs.2 and shares are fully subscribed

A shareholder holding 500 shares failed to pay the first and final call. His shares were forfeited and later on re issued at Rs.8 per share fully paid up.

Question: Which one of the following is the registered capital of the company?
a) Paid up capital
b) Uncalled capital
c) Authorized capital
d) Issued capital
Answer: c

Question: What entry you will pass if asset is purchased and shares are issued at premium.
a) Vendor a/c Dr To share capital
b) Assets a/c Dr To share capital To share premium
c) Vendor a/c Dr Share premium a/c Dr To Share capital
d) Vendor a/c Dr To share capital To share premium
Answer: d

Question: If shares are issued to promoters for their services then the account debited will be
a) Goodwill a/c
b) Promoters a/c
c) Asset a/c
d) Expenses a/c
Answer: a

Question: The company issued Rs. 1,00,000 worth of shares towards the purchase price of machinery costing Rs. 90,000. The excess of Rs. 20,000 is transferred to
a) Share capital a/c
b) Capital reserve a/c
c) Securities premium reserve a/c
d) Cash a/c
Answer: c

Mr. Ramesh worked as a Lower division clerk in a state government office in the state of Telangan(a) He is very much interested in investing his savings in shares of limited companies. He applied for 300 shares from Reliance Industries lt(D) He was allotted all shares. Due to some financial constraints he failed to pay the allotment money of Rs.5( including premium of Rs.2) and first and final call of Rs.3. The company after giving due notices, forfeited all the shares of Rs10 each issued at a premium of Rs.2. 1/3rd of the forfeited shares were reissued at 11 per share fully paid up to Mr. Ram 

Question: What entry will you pass to transfer forfeiture a/c to Capital reserve?
a) Share forfeiture a/c Dr 400 To Capital reserve a/c 400
b) Share forfeiture a/c Dr 450 To Capital reserve a/c 450
c) Share forfeiture a/c Dr 600 To Capital reserve a/c 600
d) Share forfeiture a/c Dr 360 To Capital reserve a/c 360
Answer: a

Question: The total amount debited to share capital account while forfeiting the shares is
a) Rs. 2,500
b) Rs. 3,000
c) Rs. 4,000
d) Rs. 5,000
Answer: b

Question: How much amount is shown in the Balance Sheet under share forfeiture account?
a) Rs. 800
b) Rs. 880
c) Rs. 400
d) Rs. 650
Answer: a

Question: Cost of revenue from operations for the year 2020 would be …………… .
a) ₹ 21,12,000
b) ₹ 21,13,000
c) ₹ 21,15,000
d) ₹ 21,17,000
Answer: a

Question: Current ratio for the year 2020 will be …………… .
a) 2 : 1
b) 1.8 : 1
c) 2.32 : 1
d) 2.4 : 1
Answer: c

Question: Quick ratio for the year 2018 will be …………… .
a) 1.75 : 1
b) 1.8 : 1
c) 0.94 : 1
d) 1.25 : 1
Answer: a

A MBA graduate from IIT Kharagpur instead of going to America and Canada decided to become an entrepreneur in India and decided to start a Public Limited Company in the city of Kolkot(a) After preparing the Memorandum of Association for the company he got the permission from the Comptroller of Capital Issues to issue 1,00,000 Equity shares of Rs.10 each at a premium of Rs.2. The pubic subscribed for 95000 applications. The company decided to allot the shares on 1-4-2021. The company made all the calls and all the money is received except on 2000 shares which are forfeited and later on reissued at Rs.9 per share fully paid up.

Question: As per SEBI guidelines, application money should not be less than …… of the issue price of each share
a) 10% of the issue price
b) 15% of the issue price
c) 25% of the issue price
d) 50% of the issue price
Answer: c

Question: Minimum subscription amount of 90% is related to which share capital?
a) Authorised capital
b) Issued capital
c) Paid up capital
d) Reserve capital
Answer: b

Question: If the shares are forfeited how much money should be returned to the defaulting shareholders?
a) Nothing
b) All calls paid
c) Only application money
d) Application and allotment money
Answer: a

Question: Which clause in the Memorandum of Association states about authorised capital of the company?
a) Name clause
b) Object clause
c) Capital clause
d) Association clause
Answer: c

Soon after incorporation of Arvind Lt(D) decided to issue 80,000 equity shares of Rs.10 each at a premium of Rs.5 per share. Instead of collecting all the capital in the form of cash/bank they have decided to go for the purchase of assets in return pay them in the form of issue of shares. They approached a businessman who sells machinery which is very must useful in production of that material. The company purchased Machinery worth Rs.5,50,000 and in return they issued equity shares of Rs.10 each at a premium of 10%. Further they issued shares to the public for subscription. The issue is oversubscribed to the extent of 10%. To the surprise one shareholder who got 1000 shares paid all the money due on allotment Rs.3 and call money Rs.2 along with allotment money..

Question: Select the type of allotment of shares made to the company against the purchase of machinery.
a) Issue against consideration other than cash
b) Initial public offer
c) Issue for cash
d) Preferential allotment
Answer: a

Question: How much amount is received as calls in advance?
a) Rs. 5,000
b) Rs. 3,000
c) Rs. 2,000
d) Rs. 1,000
Answer: a

Question: If the shares are issued at premium of 10% against the purchase of an asset, then how many shares are issued?
a) 45,000 shares
b) 55,000 shares
c) 45,000 shares
d) 50,000 shares
Answer: d

Question: Which option is not available to adjust the excess applications received on issue of equity shares?
a) Excess applications can be rejected
b) Excess applications can be adjusted towards allotment
c) Excess applications can be partly rejected and partly adjusted towards allotment
d) Excess applications can be allotted with preference shares
Answer: d

Ambala Lt(D) Was registered with an authorized capital of Rs.2,00,000 in Rs.10 per equity share, of these 6000 equity shares of Rs.10 each issued as fully paid to the vendor for purchase of building, at a premium of Rs.2 per share. 8000 equity shares were issued for subscription and during the first year Rs.5 per equity share were called-up, payable Rs.2 on application, Rs.1 on allotment, Rs,1 on first call and Rs.1 on final call. The amount received in respect of these shares was:

On 6000 Equity shares the full amount was receive(D)

On 1250 shares Rs.4 per Equity share,

On 500 shares Rs.3 per Equity share,

On250 shares Rs.2 per Equity share

Question: How many shares are not still issued by the company?
a) 6,000
b) 5,000
c) 7,000
d) 10,000
Answer: a

Question: What is the price of the building purchased against issue of equity shares?
a) Rs. 72,000
b) Rs. 60,000
c) Rs. 75,000
d) Rs. 66,000
Answer: a

Question: On forfeiture how much money is credited to share forfeiture account?
a) Rs. 2,000
b) Rs. 250
c) Rs. 500
d) Rs. 750
Answer: a

Question: How many shareholders did not pay the first call and final call money only?
a) 750
b) 2,000
c) 1,250
d) 500
Answer: a

Raman a shareholder who works in a Maruti Udyog Lt(D) Which is a pioneer in manufacturing small cars got an invitation from the company to buy shares issued by the company under the Employees Stock Option Plan. At first he is not interested in buying the shares but after compulsion from his friends he exercised his option to buy shares from the company. Afterwards he came to know this type of issue can be made to the promoters of the company for the services rendered by them to the company. He purchased 200 shares of Rs.10 each at a premium of Rs.25 whereas the current market value of the share is Rs.150.

Question: What type of shares can be issued under ESOP?
a) It should be of the same class of shares already issued
b) It should be a new issue of shares
c) It should be of preference shares only
d) It can be of any type of shares
Answer: a

Question: The value of option is:
a) The issue price of the shares
b) The market price of the shares
c) The difference between market price and issue price of the share
d) The face or par value of the shares
Answer: c

Question: The shares issued to the employees of the company are called as
a) ESOP
b) IPO
c) Preferential allotment
d) Public issue
Answer: a

Question: What name is given for the shares issued to the promoters of the company as remuneration for incorporation of the company?
a) Sweat Equity
b) Salary shares
c) Remuneration shares
d) Normal issue of shares
Answer: a

Nitro Paints Lt(D) Invited applications for issuing 1,60,000 equity shares of Rs.10 each at a premium of Rs.3 per share. The amount payable as follows:

On Application Rs.6 per share (including premium Rs.1) 

On Allotment Rs.3 per share (including premium Rs.1);
The Balance on First and Final call.
Applications for 1,80,000 shares were receive(D) Applications for 10,000 shares were rejected and pro rata allotment was made to the remaining applications. Over payment received on application was adjusted towards sum due on allotment and calls. All calls were made and duly received except allotment and final call from Aditya who was allotted 3200 shares. His shares were forfeite(D) Half of the forfeited shares were reissued for Rs.43000 as fully paid up.

Question: How many shares were applied by Aditya to get 3,200 shares allotted?
a) 3,400
b) 4,300
c) 2,300
d) 3,400
Answer: a

Question: How much allotment money is in arrears on Aditya’s default?
a) Rs. 8,400
b) Rs. 4,800
c) Rs. 6,400
d) Rs. 4,600
Answer: a

Question: What amount of the forfeited shares is transferred to capital reserve?
a) Rs. 8,600
b) Rs. 6,800
c) Rs. 7,800
d) Rs. 8,700
Answer: a

Question: Mention the total amount of premium to be shown in the Balance Sheet?
a) Rs. 5,00,600
b) Rs. 6,00,500
c) Rs. 6,50,500
d) Rs. 5,60,600
Answer: a

Ravi Industries Lt(D) A company in the manufacture of computers decided to issue for public subscription 40000 equity shares of Rs.10 each at a premium of Rs.2 payable as :

On Application –Rs.2 per share On Allotment _ Rs. 5 per share(including premium)

On first call _ Rs.2 per share On Second and final call _ Rs.3 per share,
Applications were received for 60000 shares. Allotment was made on pro rata basis to the applicants for 48000 shares, the remaining applications being refuse(D) Money overpaid on applications was utilized towards sum due on allotment. Ram applied for 2400 shares failed to pay the allotment money due and shyam to whom 2000 shares were allotted filed to pay the two calls. These shares were subsequently forfeited after the second and final call was made. All the forfeited shares were reissued as fully paid at Rs.8 per share.

Question: How many applications are rejected and how much money is returned?
a) 12,000 applications, Rs. 24,000
b) 8,000 applications, Rs. 16,000
c) 20,000 applications, Rs. 40,000
d) 16,000 applications, Rs. 32,000
Answer: a

Question: The excess applications and application money adjusted towards allotment is:
a) 8,000 applications, Rs. 16,000
b) 12,000 applications, Rs. 24,000
c) 20,000 applications, Rs. 40,000
d) 16,000 applications, Rs. 32,000
Answer: a

Question: The total forfeiture amount before reissue of forfeited shares is:
a) Rs. 14,800
b) Rs. 18,400
c) Rs. 16,400
d) Rs. 14,600
Answer: a

Question: How many shares are allotted to Ram?
a) 2,000 shares
b) 2,400 shares
c) 600 shares
d) 1,800 shares
Answer: a

Very Short Answer Questions [1 mark]

Question 1. What is meant by Authorised Capital of a company? OR Give the meaning of 'Registered Capital' of a company.
Answer: This is the amount stated in the capital clause of the memorandum of association with which the company is registered. It is the maximum amount which a company can raise during its life time.
In simple words: Authorised Capital is like a ceiling — it is the highest total amount of money the company is allowed to collect from shareholders by selling shares. The company cannot go above this figure without changing its memorandum.

Exam Tip: Authorised Capital is fixed and can only be changed by shareholder approval — it is shown in the capital clause of the Memorandum of Association.

Question 2. What is meant by Issued Capital?
Answer: The part of Authorised Share Capital, which is offered to the public for subscription is called 'Issued Capital'.
In simple words: Issued Capital is the portion of Authorised Capital that the company actually decides to offer for sale to investors. The company does not have to offer all of its authorized capital — it can keep some in reserve for future use.

Exam Tip: Issued Capital is always less than or equal to Authorised Capital — it represents the shares the company has put up for subscription.

Question 3. What do you mean by Capital Reserve?
Answer: Capital reserve is that reserve which is created out of capital profits such as profit on sale of fixed assets, profit on revaluation of assets, premium on issue of shares and debentures etc.
In simple words: Capital Reserve is built from gains that come from unusual or non-recurring events — when you sell a building at a profit, or revalue property upward, or issue shares at a premium. These are different from regular business profits.

Exam Tip: Capital reserves come from capital profits, not from day-to-day operations — they cannot normally be distributed as dividends.

Question 4. Give the meaning of forfeiture of shares.
Answer: Forfeiture of shares means cancellation of shares allotted for the non-payment of allotment or call money and treating actually received amount as forfeited.
In simple words: When a shareholder fails to pay what the company asks for (whether on allotment or on a call), the company can take back the shares and keep whatever money the shareholder had already paid. The shareholder loses the shares and the money paid so far.

Exam Tip: Forfeiture is a company right when shareholders do not meet payment obligations — it is a penalty mechanism to enforce payment discipline.

Question 5. Y Ltd. forfeited 100 equity shares of ₹10 each for the non-payment of the first call of ₹2 per share. The final call of ₹2 per share was yet to be made. Calculate the maximum amount of discount at which these shares can be reissued.
Answer: The maximum amount of discount at which these shares can be reissued is ₹6 per share or ₹600.
In simple words: Each share had a value of ₹10. Application and allotment money received was ₹6 per share (₹3 + ₹3). The discount cap is ₹6. So the reissue price must be at least ₹10 - ₹6 = ₹4 per share. For 100 shares, the minimum total price is ₹400, allowing a maximum discount of ₹600 (or ₹6 per share).

Exam Tip: Calculate the amount received on forfeited shares — that amount is the maximum allowable discount on reissue.

Question 6. What is meant by Pro-rata Allotment of shares?
Answer: Pro-rata allotment is that allotment of shares when applicants may be allotted less number of shares than they have applied for.
In simple words: When many more people apply for shares than the company has available, the company cannot give everyone all the shares they asked for. Instead, it divides the shares fairly based on what each person applied for — if 1,000 shares are available and 2,000 were applied for, each person gets half of what they requested.

Exam Tip: Pro-rata allotment is proportional allotment — each applicant receives a percentage of their request equal to the percentage of available shares.

Question 7. What is meant by Employees Stock Option Plan?
Answer: Employees Stock Option Plan means option granted by the company to its employees and directors to subscribe to the shares of the company at a price that is lower than the market price.
In simple words: An Employee Stock Option Plan (ESOP) is a benefit given to staff and leaders — the company lets them buy company shares at a special discounted price, often well below what the public pays. This helps keep good people in the company and makes them feel like owners.

Exam Tip: ESOP is a retention and incentive tool — it is not compulsory for employees to take the option, but it attracts talent.

Question 8. Define Preference Shares.
Answer: Preference shares are those shares which are entitled to a priority in the payment of dividend at fixed rate and return of their capital.
In simple words: Preference shares are a special type of ownership where shareholders get paid a set dividend every year if the company can afford it, and when the company closes down, they get their money back before ordinary shareholders do.

Exam Tip: Two key features define preference shares: fixed dividend rate and priority in capital return — neither of which ordinary shares have.

Question 9. What is the name given to the 'Part of Capital' of a company which is called-up only on winding-up?
Answer: Reserve Capital.
In simple words: A company can set aside a portion of its authorized capital that will only be called from shareholders if the company is closing down and needs extra funds to pay creditors. This special reserve is called Reserve Capital.

Exam Tip: Reserve Capital is a safety net for creditors — it stays in the background until winding-up occurs, when it becomes available.

Question 10. D Ltd. invited applications for issuing 10,00,000 equity shares of ₹10 each. The public applied for 8,55,000 shares. Can the company proceed for the allotment of shares? Give reason in support of your answer.
Answer: The company cannot proceed for the allotment of shares as the minimum subscription has not been received which should be 90% of the shares offered for subscription (i.e. 9,00,000).
In simple words: The company offered 10,00,000 shares but received applications for only 8,55,000 shares. The law says the company must get at least 90% of applications (which is 9,00,000). Since 8,55,000 is less than 9,00,000, the minimum threshold was not met. The company cannot move forward.

Exam Tip: The 90% minimum subscription rule is mandatory — failure to meet it blocks share allotment and forces refund of applications.

Question 11. On 1st Jan., 2016 the first call of ₹3 per share became due on 1,00,000 equity shares issued by Kamini Ltd. Karan a holder of 500 shares did not pay the first call money. Arjun a shareholder holding 1,000 shares paid the second and final call of ₹5 per share along with the first call. Pass the necessary journal entry for the amount received by opening 'Calls-in-Arrears' and 'Calls-in-Advance' Account in the books of the company.
Answer: The necessary journal entries are shown below:

In simple words: On the call date, most shareholders paid the ₹3 per share due (99,500 shares × ₹3 = ₹2,98,500). Karan did not pay on 500 shares, so ₹1,500 is shown as arrears (amounts owed). Arjun paid ₹3 on first call plus ₹5 on final call (1,000 shares × ₹8 = ₹8,000), so ₹5,000 extra is recorded as advance. Total cash received = ₹2,98,500 + ₹1,000 + ₹3,000 = ₹3,03,500. This entry captures all three components: regular call receipts, arrears owed, and advance payment.

Exam Tip: When handling mixed call collections, separate the amounts into three parts: normal calls received, calls in arrears (unpaid), and calls in advance (paid early) — each goes to its own account.

Question 12. Identify the purpose of utilising the 'Securities Premium Reserve' that would maximise the return to shareholders.
Answer: A company can boost the return to shareholders by using the amount of securities premium reserve through buy back of its shares.
In simple words: The company uses the reserve to repurchase its own shares from the market, which helps boost shareholder value.

Exam Tip: Remember that securities premium reserve can only be used for specific purposes as per the Companies Act - buyback is one of them.

Question 13. Mr. X holding 100 shares did not pay the amount of Rs. 3 due on first call of his shares. Under which head will the unpaid amount be shown in the Balance Sheet?
Answer: The Calls-in-Arrears of Rs. 300 will be shown in the Balance Sheet under the heading 'Share Capital' as a deduction from Subscribed Share Capital.
In simple words: Unpaid call money appears as a reduction in the share capital section of the balance sheet.

Exam Tip: Calls-in-Arrears is always shown as a reduction or deduction from Subscribed Share Capital in the liabilities side.

Question 14. Determine the amount of permissible discount at the time of reissue on a share of Rs. 10 issued originally at a premium of Rs. 2 on which application and allotment money (including premium) of Rs. 7 has been received.
Answer: Total money received in respect of share capital is Rs. 7 (Total money received - premium money received), therefore maximum permissible discount at the time of reissue will be Rs. 5.
In simple words: The discount cannot go below Rs. 5 when the share is reissued, since Rs. 7 was already collected from the shareholder.

Exam Tip: The reissue discount is limited to the amount not yet received on the share's face value.

Question 15. Give any one purpose for which the amount received as securities premium may be utilised.
Answer: According to Section 52(2) of the Companies Act, 2013, the amount of securities premium can be used to issue fully paid-up bonus shares to the shareholders.
In simple words: Securities premium money can help the company hand out free shares to existing investors.

Exam Tip: Section 52(2) lists several permitted uses - bonus shares, redemption, and preliminary expenses are key examples.

Question 16. What is meant by 'Preferential Allotment of Shares'?
Answer: Preferential Allotment means an allotment of shares made at a pre-determined price to the pre-identified people having strategic stake in the company such as promoters, venturers, capitalists, financial institutions, suppliers, etc.
In simple words: The company hands out shares at a fixed price to specific insiders like founders and key financial partners.

Exam Tip: Preferential allotment requires board approval and follows the Companies Act rules on pricing and identification of allottees.

Question 17. What is meant by 'Issue of shares for consideration other than cash'. Give an example.
Answer: Sometimes company issue fully paid shares to the vendor from whom it buys asset. Such type of issue of shares to the vendor is called 'Issue of shares for consideration other than cash'.
In simple words: The company gives free shares to someone who sells them an asset, instead of paying cash.

Exam Tip: This is common in acquisitions - shares replace cash payment for assets or businesses purchased.

Question 18. How does 'Preliminary expenses' appear in Balance Sheet?
Answer: Preliminary expenses are not shown in Balance Sheet. As per AS-26 they are written off in the same year in which they are incurred.
In simple words: Startup costs are expensed immediately rather than appearing as an asset on the balance sheet.

Exam Tip: Accounting Standard AS-26 requires immediate write-off of preliminary expenses in the P&L statement.

Question 19. What is meant by surrender of shares?
Answer: It is voluntary return of shares by a shareholder for the purpose of cancellation.
In simple words: A shareholder willingly gives back their shares to the company, which then cancels them.

Exam Tip: Surrender is different from forfeiture - it is a voluntary act by the shareholder, not a penalty.

Question 20. What is meant by 'forfeiture of shares'. When does gain on forfeited share arise and when is it transferred to Capital Reserve?
Answer: Cancellation of shares for the non payment of called up amount is termed as Forfeiture of shares. Gain on Forfeited shares arises on reissue. It is transferred immediately on the reissue of forfeited shares.
In simple words: When a shareholder fails to pay, their shares are cancelled. If those shares are later sold for more than they cost, the profit goes straight to Capital Reserve.

Exam Tip: Gain on forfeited shares = reissue price minus face value (or original receipt). Transfer happens at the point of reissue, not before.

Short Answer Questions [3, 4 marks]

Question 1. State any three purposes other than 'issue of bonus shares' for which securities premium can be utilised.
Answer: The amount received as securities premium can be used other than 'issue of bonus shares' for the following purposes:
- In writing off the preliminary expenses of the company.
- For providing the premium payable on redemption of redeemable preference shares or debentures of the company.
- For buy-back of its own shares.
In simple words: Securities premium helps pay startup costs, fund redemption payments, and finance share buybacks.

Exam Tip: Section 52(2) of the Companies Act lists all permitted uses - learn at least 4-5 to secure full marks.

Question 2. Guru Ltd. invited applications for issuing 5,00,000 equity shares of Rs. 100 each at a premium of Rs. 5 per share. Because of favourable market conditions the issue was over-subscribed and applications for 15,00,000 shares were received. Suggest the alternatives available to the Board of Directors for the allotment of shares.
Answer: Alternatives available to the Board of directors are:
- Excess applications may be rejected and shares may be allotted to the remaining applicants as full.
- Shares may be allotted to all the applicants on pro-rata basis.
- Some of the applications may be rejected and shares may be allotted to the remaining applicants on pro-rata basis.
In simple words: The board can reject extra bids completely, divide shares equally among all bidders, or mix both approaches.

Exam Tip: The board has discretion here - mention that pro-rata allotment is the fairest method when oversubscription occurs.

Question 3. 'India Auto Ltd.' is registered with an authorised capital of Rs. 7,00,00,000 divided into 7,00,000 shares of Rs. 100 each. The company issued 50,000 shares to the vendor for building purchased and 2,00,000 shares were issued to the public. The amount was payable as follows:
On application and allotment - Rs. 20 per share
On first call - Rs. 50 per share
On second and final call - The balance
All calls were made and were duly received except on 100 shares held by Rajani, who failed to pay the second and final call. Her shares were forfeited.
Present the 'Share Capital' in the Balance Sheet of the company as per Schedule III Part I of the Companies Act, 2013. Also prepare 'Notes to Accounts'.
Answer:

Notes to Accounts:

In simple words: Share capital is shown as the amount actually subscribed and paid. Forfeited shares are added back at the amount received on them before forfeiture.

Exam Tip: Always show forfeited shares as an addition to subscribed capital. The balance sheet share capital figure should reconcile with the notes.

Question 4. On 1st April, 2016, Vishwas Ltd. was formed with an authorised capital of Rs. 10,00,000 divided into 1,00,000 equity shares of Rs. 10 each. The company issued prospectus inviting applications for 90,000 equity shares. The company received applications for 85,000 equity shares. During the first year, Rs. 8 per share were called. Ram holding 1,000 shares and Shyam holding 2,000 shares did not pay the first call of Rs. 2 per share. Shyam's shares were forfeited after the first call and later on 1,500 of the forfeited shares were re-issued at Rs. 6 per share, Rs. 8 called up.
Show the following:
(a) Share Capital in the Balance Sheet of the company as per Schedule III Part I of the Companies Act, 2013.
(b) Also prepare 'Notes to Accounts' for the same.
Answer:

Notes to Accounts:

In simple words: The shares not fully paid are shown at the called-up amount. Calls-in-Arrears reduce this figure, and forfeited share proceeds add back to the capital.

Exam Tip: Track each shareholder's payment status carefully. Forfeited shares add value only up to the amount received before forfeiture.

Question 5. The authorised capital of Suhani Ltd. is Rs. 45,00,000 divided into 30,000 shares of Rs. 150 each. Out of these, company issued 15,000 shares of Rs. 150 each at a premium of Rs. 10 per share. The amount was payable as follows: Rs. 50 per share on application, Rs. 40 per share on allotment (including premium), Rs. 30 per share on first call and balance on final call. Public applied for 14,000 shares. All the money was duly received.
Prepare an extract of Balance Sheet of Suhani Ltd. as per Schedule III Part I of the Companies Act, 2013 disclosing the above information. Also prepare 'Notes to Accounts' for the same.
Answer:

Notes to Accounts:

In simple words: All share cash has been received and shown as an asset. The premium portion is kept separate in the Securities Premium Reserve.

Exam Tip: Always separate the face value and premium - face value goes to Share Capital, premium goes to Securities Premium Reserve.

Question 6. Disha Ltd. purchased machinery from Nisha Ltd. and paid to Nisha Ltd. as follows:
(i) By issuing 10,000, equity shares of Rs. 10 each at a premium of 10%.
(ii) By issuing 200, 9% debentures of Rs. 100 each at a discount of 10%.
(iii) Balance by accepting a bill of exchange of Rs. 50,000 payable after one month.
Pass necessary journal entries in the books of Disha Ltd. for the purchase of machinery and making payment to Nisha Ltd.
Answer:

In simple words: Machinery is recorded at what was given in return - the share premium goes to its own reserve, debenture discount is shown separately, and the bill becomes a liability.

Exam Tip: Calculate each payment component separately: shares at face + premium, debentures at face minus discount, then the bill amount. Total must match machinery value.

Question 7. Rose Ltd. issued 25,000 shares of Rs. 10 each credited as fully paid to the promoters for their services. It also issued 15,000 shares of Rs. 10 each credited as fully paid to the underwriterrs for their commission. Give Journal entries.
Answer:

In simple words: First record the expense or commission owed. Then issue shares at face value to settle that debt. The shares themselves are the payment.

Exam Tip: For shares issued for services, always show two entries - first the debt, then its settlement by share issue. Never directly credit share capital without showing the corresponding expense.

Question 8. K Ltd. took over the assets of Rs. 15,00,000 and liabilities of Rs. 5,00,000 of P Ltd. for a purchase consideration of Rs. 13,68,500. Rs. 25,500 were paid by issuing a promissory note in favour of P Ltd. payable after two months and the balance was paid by issue of equity shares of Rs. 100 each at a premium of 25%. Pass necessary journal entries for the above transactions in the books of K Ltd.
Answer:

In simple words: Acquire assets and note the liabilities. Record goodwill (the difference). Then show the payment mix - part note, part shares with their premium recorded separately.

Exam Tip: Calculate goodwill carefully: assets minus liabilities minus purchase consideration. Share count comes from dividing share consideration by face value, and premium is separated.

Question 9. Pass necessary journal entries for the following transactions in the books of Gopal Ltd.:
(i) Purchased furniture for Rs. 2,50,000 from M/s Furniture Mart. The payment to M/s Furniture Mart was made by issuing equity shares of Rs. 10 each at a premium of 25%.
(ii) Purchased a running business from Aman Ltd. for a sum of Rs. 15,00,000. The payment of Rs. 12,00,000 was made by issue of fully paid equity shares of Rs. 10 each and balance by a bank draft. The assets and liabilities consisted of the following:
Plant Rs. 3,50,000; Stock Rs. 4,50,000; Land and Building Rs. 6,00,000; Sundry Creditors Rs. 1,00,000.
Answer:

In simple words: Record furniture bought for shares, splitting face value and premium. For the business purchase, record individual assets and liabilities, then show payment by shares and bank draft, with premium separated.

Exam Tip: When shares are issued at a premium, always split the entry into face value (to Share Capital) and premium (to Securities Premium Reserve). This separation is compulsory.

Question 10. MCS Ltd issued 40,000 shares of Rs10 each payable at Rs2 on application, Rs4 on allotment and balance in two equal instalments.
Answer: Applications were received for 80,000 shares and the allotment was made as follows:
(i) Applications of 50,000 shares were allotted 30,000 shares.
(ii) Applications of 30,000 shares were allotted 10,000 shares.
Neeraj to whom 600 shares were allotted from category (i) failed to pay the allotment money.

Journal Entries:

Entry 1 - Application Money Received:
Bank A/c Dr. 1,60,000
    To Share Application A/c 1,60,000
(Being application money received on 80,000 shares)

Entry 2 - Application Money Transferred:
Share Application A/c Dr. 1,60,000
    To Share Capital A/c 80,000
    To Share Allotment A/c 80,000
(Being application money transferred and adjusted)

Entry 3 - Allotment Money Due:
Share Allotment A/c Dr. 1,60,000
    To Share Capital A/c 1,60,000
(Being allotment money due on 40,000 shares)

Entry 4 - Allotment Money Received:
Bank A/c Dr. 78,400
    To Share Allotment A/c 78,400
(Being allotment money received)

In simple words: When a company issues shares in instalments, it records the money received at each stage. The application money gets recorded first, then transferred to the share capital. When allotment happens, the allotment money becomes due. If a shareholder does not pay, that amount is not received and is shown separately.

Exam Tip: Always track which shareholders paid and which did not - missing payments from applicants like Neeraj must be shown as calls-in-arrears and later forfeited if unpaid.

Question 11. JCV Ltd. forfeited 200 shares of Rs10 each issued at a premium of Rs2 per share for the non-payment of allotment of Rs3 per share (including premium). The first and final call of Rs4 per share has not been made yet. 50% of forfeited shares were reissued at Rs8 per share fully paid-up. Pass necessary journal entries for the forfeiture and reissue of shares.
Answer: When shares are forfeited due to non-payment, the company takes back those shares. The money received from the forfeited shares is cancelled, and the capital and premium are reversed. When these shares are later reissued at a new price, the difference between the reissue value and the cancelled amount creates a profit or loss.

Journal Entries:

Entry 1 - Forfeiture of Shares:
Share Capital A/c Dr. 1,200
Securities Premium Reserve A/c Dr. 400
    To Share Forfeited A/c 1,000
    To Share Allotment A/c 600
(Being 200 shares forfeited for the non-payment of allotment)

Entry 2 - Reissue of 100 Forfeited Shares:
Bank A/c Dr. 800
Share Forfeited A/c Dr. 200
    To Share Capital A/c 1,000
(Being reissue of 100 forfeited shares)

Entry 3 - Profit on Reissue:
Share Forfeited A/c Dr. 300
    To Capital Reserve A/c 300
(Being profit on reissue transferred to Capital Reserve A/c)

In simple words: When 200 shares are forfeited, the share capital and premium attached to those shares are reversed. When 100 of these forfeited shares are then sold at Rs8 per share, the company receives Rs800. The cost to the company was Rs500 (Rs1,000 divided by 2), so a profit of Rs300 is made on reissue and sent to the capital reserve.

Exam Tip: Remember that profit on reissue of forfeited shares goes to Capital Reserve A/c, not Profit and Loss A/c - this is a capital profit, not revenue profit.

Question 12. The Directors of a Company forfeited 500 shares of Rs10 each issued at a premium of Rs3 per share, for the non-payment of the first call money of Rs3 per share. The final call of Rs2 per share has not been made. Half the forfeited shares were reissued at Rs2,500 fully paid. Record the journal entries for the forfeiture and reissue of shares.
Answer: When shares are forfeited for non-payment of the first call, the company cancels the amount received so far on those shares. When half of the forfeited shares (250 shares) are reissued at Rs2,500 fully paid, this generates a profit since the company had only received Rs2,400 per share before forfeiture, but now receives Rs2,500 per share.

Journal Entries:

Entry 1 - Forfeiture of 500 Shares:
Share Capital A/c Dr. 4,000
    To Share First Call A/c 1,500
    To Share Forfeited A/c 2,500
(Being 500 shares forfeited for the non-payment of first call)

Entry 2 - Reissue of 250 Forfeited Shares:
Bank A/c Dr. 2,500
    To Share Capital A/c 2,500
(Being reissue of forfeited shares at Rs2,500 as fully paid-up)

Entry 3 - Profit on Reissue:
Share Forfeited A/c Dr. 1,250
    To Capital Reserve A/c 1,250
(Being profit on reissue transferred to Capital Reserve A/c)

In simple words: The company forfeits 500 shares because shareholders did not pay the first call of Rs3 each. The company had received Rs8 per share (Rs5 on application and allotment, plus Rs3 first call). When it reissues 250 of these shares at Rs2,500 fully paid, the gain is Rs1,250, which goes to Capital Reserve.

Exam Tip: When calculating profit on reissue, find the amount forfeited per share and multiply by the number of shares reissued - ensure you account for all calls received before forfeiture.

Question 13. P.S. Ltd. forfeited 500 shares of Rs100 each for the non-payment of first call of Rs30 per share. The final call of Rs10 per share was not yet made. The forfeited shares were reissued for Rs65,000 fully paid-up. Pass necessary journal entries in the books of the company.
Answer: When shares are forfeited for non-payment of the first call, the money already received on those shares is cancelled from the company's books. When these forfeited shares are later reissued at a new price, the difference between what the company now receives and what it had cancelled becomes a profit, which is transferred to Capital Reserve.

Journal Entries:

Entry 1 - Forfeiture of 500 Shares:
Share Capital A/c Dr. 45,000
    To Share Forfeited A/c 30,000
    To Share First Call A/c 15,000
(Being 500 shares forfeited for the non-payment of first call)

Entry 2 - Reissue of 500 Forfeited Shares:
Bank A/c Dr. 65,000
    To Share Capital A/c 50,000
    To Securities Premium Reserve A/c 15,000
(Being reissue of forfeited shares at Rs65,000 as fully paid-up)

Entry 3 - Profit on Reissue:
Share Forfeited A/c Dr. 30,000
    To Capital Reserve A/c 30,000
(Being profit on reissue transferred to Capital Reserve A/c)

In simple words: The company forfeits 500 shares worth Rs45,000 because shareholders did not pay the first call. This cancels Rs30,000 from share capital and Rs15,000 from the first call. When the company reissues these 500 shares at Rs65,000, it gains Rs35,000. Of this, Rs30,000 comes from cancelling the forfeited amount and Rs5,000 is genuine profit (or premium on reissue), which all goes to Capital Reserve.

Exam Tip: Always separate the profit on reissue into two parts - the amount that was forfeited (which goes directly to Capital Reserve) and any genuine premium received on reissue (which also goes to Capital Reserve, not Profit and Loss).

Question 1 (Long Answer Questions). AB Ltd. invited applications for issuing 75,000 equity shares of Rs100 each at a premium of Rs30 per share. The amount was payable as follows:
On Applications and Allotment - Rs85 per share (including premium)
On First and Final Call - the balance Amount
Applications for 1,27,500 shares were received. Applications for 27,500 shares were rejected and shares were allotted on pro-rata basis to the remaining applicants. Excess money received on applications and allotment was adjusted towards sums due on first and final call. The calls were made. A shareholder, who applied for 1,000 shares, failed to pay the first and final call money. His shares were forfeited. All the forfeited shares were reissued at Rs150 per share fully paid-up. Pass necessary journal entries for the above transactions in the books of AB Ltd.
Answer: The company receives applications for more shares than it is issuing. It rejects some applications and allots shares on a pro-rata basis to the remaining applicants. Money received in excess is adjusted against future calls. When a shareholder fails to pay calls, shares are forfeited and later reissued at a new price, generating profit.

Journal Entries in the Books of AB Ltd.

Entry 1 - Application Money Received:
Bank A/c Dr. 1,08,37,500
    To Share Application and Allotment A/c 1,08,37,500
(Being application money received)

Entry 2 - Application Money Transferred:
Share Application and Allotment A/c Dr. 1,08,37,500
    To Share Capital A/c 41,25,000
    To Securities Premium Reserve A/c 22,50,000
    To Bank A/c 23,37,500
    To Share First and Final Call A/c 21,25,000
(Being application money transferred, excess adjusted and rejected and refunded)

Entry 3 - First and Final Call Due:
Share First and Final Call A/c Dr. 33,75,000
    To Share Capital A/c 33,75,000
(Being allotment money due)

Entry 4 - First and Final Call Money Received:
Bank A/c Dr. 12,37,500
    To Share First and Final Call A/c 12,37,500
(Being first and final call money received)

Entry 5 - Shares Forfeited:
Share Capital Dr. 75,000
    To Share Forfeited A/c 62,500
    To Share First and Final Call 12,500
(Being 750 shares forfeited)

Entry 6 - Forfeited Shares Reissued:
Bank A/c Dr. 1,12,500
    To Share Capital A/c 75,000
    To Securities Premium Reserve A/c 37,500
(Being 750 forfeited shares reissued at Rs150 per share)

Entry 7 - Profit on Reissue:
Share Forfeited A/c Dr. 62,500
    To Capital Reserve A/c 62,500
(Being profit on reissue regarding 750 shares transferred to Capital Reserve A/c)

In simple words: The company issues 75,000 shares but receives applications for 1,27,500. After rejecting 27,500 and allocating pro-rata to others, it allots 75,000 shares. The money received up to the allotment stage (Rs85 per share) totals Rs1,08,37,500. After adjusting the excess money against the first and final call, the remaining call is Rs33,75,000. When one shareholder with 750 shares (after pro-rata allotment) fails to pay the final call, the company forfeits these shares, cancels the Rs75,000 of capital, and later reissues the 750 shares at Rs150 each fully paid, earning a profit of Rs62,500.

Exam Tip: In pro-rata allotment questions, always calculate the number of shares allotted to each applicant category, then track the calls and any arrears carefully - the shareholder who failed to pay must have his pro-rata share count calculated first.

Question 2 (Long Answer Questions). Saral Ltd. invited applications for issuing 25,000 equity shares of Rs100 each at par. The amount per share was payable as follows:
On Application - Rs20 per share
On Allotment - Rs30 per share
On First Call - Rs25 per share
On Second and Final Call - Rs25 per share
Applications were received for 24,000 shares and the shares were allotted to all the applicants. All calls were made and were received as follows:
On 18,000 shares - Full amount
On 2,000 shares - Rs75 per share
On 2,500 shares - Rs50 per share
On 1,500 shares - Rs20 per share
The company forfeited those shares on which less than Rs75 per share were received. The forfeited shares were reissued at Rs95 per share fully paid up. Pass necessary journal entries for the above transactions in the books of the company.
Answer: The company issues shares in four instalments. Some shareholders pay the full amount, others pay less. The company forfeits shares where less than Rs75 per share was received (this is the amount due up to first call). The forfeited shares are then reissued at Rs95 per share, creating a profit.

Journal Entries in the Books of Saral Ltd.

Entry 1 - Application Money Received:
Bank A/c Dr. 4,80,000
    To Equity Share Application A/c 4,80,000
(Being amount received on application)

Entry 2 - Application Money Transferred to Share Capital:
Equity Share Application A/c Dr. 4,80,000
    To Equity share capital A/c 4,80,000
(Being amount transferred to share capital)

Entry 3 - Allotment Money Due:
Equity Share Allotment A/c Dr. 7,20,000
    To Equity Share Capital A/c 7,20,000
(Being share allotment made due)

Entry 4 - Allotment Money Received:
Bank A/c Dr. 6,75,000
Calls-in-Arrears A/c Dr. 45,000
    To Equity Share Allotment A/c 7,20,000
(Being share allotment received)

Entry 5 - First Call Money Due:
Equity share First call A/c Dr. 6,00,000
    To Equity Share Capital A/c 6,00,000
(Being First call due)

Entry 6 - First Call Money Received:
Bank A/c Dr. 5,00,000
Calls-in-Arrears A/c Dr. 1,00,000
    To Equity share First call A/c 6,00,000
(Being 1st call received)

Entry 7 - Second and Final Call Money Due:
Equity Share Second and Final Call A/c Dr. 6,00,000
    To Equity Share Capital A/c 6,00,000
(Being second call due)

Entry 8 - Second and Final Call Money Received:
Bank A/c Dr. 4,50,000
Calls-in-Arrears A/c Dr. 1,50,000
    To Equity Share Second and Final Call A/c 6,00,000
(Being second call received)

Entry 9 - Shares Forfeited:
Equity Share Capital A/c Dr. (amount forfeited)
    To Share Forfeited A/c
    To Calls-in-Arrears A/c
(Being shares forfeited for non-payment)

Entry 10 - Reissue of Forfeited Shares:
Bank A/c Dr.
    To Equity Share Capital A/c
    To Securities Premium Reserve A/c
(Being forfeited shares reissued at Rs95 per share fully paid)

Entry 11 - Profit on Reissue:
Share Forfeited A/c Dr.
    To Capital Reserve A/c
(Being profit on reissue transferred to Capital Reserve A/c)

In simple words: The company allots shares and calls money in four stages. Of the 24,000 shares allotted, 18,000 have full payment, but 2,000 shares receive only Rs75 per share, 2,500 shares receive Rs50 per share, and 1,500 shares receive Rs20 per share. Since the allotment and first call amount to Rs50 per share (Rs30 plus Rs20), and the company wants at least Rs75 per share received, it forfeits the shares on which less than Rs75 was paid (the 2,500 and 1,500 share groups). These forfeited shares are reissued at Rs95 per share, creating profit that goes to Capital Reserve.

Exam Tip: When calculating forfeiture, check the total received per share against the minimum required - in this case, Rs75 per share covers application (Rs20) plus allotment (Rs30) plus part of the first call (Rs25). Track calls-in-arrears separately and show how much is owed by each shareholder group.

Question 3. Dinesh Ltd. invited applications for issuing 10,000 Equity shares of Rs 10 each. The amount was payable as follows: On Application – Rs 1, On Allotment – Rs 2, On First Call – Rs 3, On Second and Final Call — Balance. The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the allotment money and his shares were forfeited immediately after allotment. Shyam to whom 150 shares were allotted, failed to pay the first call. His shares were also forfeited after the first call. Afterwards the second and final call was made. Mohan to whom 50 shares were allotted, failed to pay the second and final call. His shares were also forfeited. All the forfeited shares were reissued at Rs 9 per share fully paid up. Pass necessary journal entries in the books of Dinesh Ltd.
Answer: Journal entries for Dinesh Ltd. showing the share application, allotment, calls, forfeiture, and reissue of shares:
Bank A/c Dr. 10,000
To Equity Share Application A/c (Being application money received)
Equity Share Application A/c Dr. 10,000
To Equity Share Capital A/c (Being application money transferred to share capital)
Equity Share Allotment A/c Dr. 20,000
To Equity Share Capital A/c (Being allotment due)
Bank A/c Dr. 19,800
Calls-in-Arrears A/c Dr. 200
To Equity Share Allotment A/c (Being allotment money received)
Equity Share Capital A/c Dr. 300
To Calls-in-Arrears A/c (Being 100 shares forfeited for non-payment of allotment)
To Share Forfeited A/c
Equity Share First Call A/c Dr. 29,700
To Equity Share Capital A/c (Being first call due)
Bank A/c Dr. 29,250
Calls-in-Arrears A/c Dr. 450
To Equity Share First Call A/c (Being first call money received)
Equity Share Capital A/c Dr. 900
To Calls-in-Arrears A/c (150 shares forfeited)
To Share Forfeited A/c
Equity Share Second and Final Call A/c Dr. 39,000
To Equity Share Capital A/c (Being second and final call due)
Bank A/c Dr. 38,800
Calls-in-Arrears A/c Dr. 200
To Equity Share Second and Final Call A/c (Being second and final call money received)
Equity Share Capital A/c Dr. 500
To Calls-in-Arrears A/c (Being 50 shares forfeited)
To Share Forfeited A/c
Bank A/c Dr. 2,700
Share Forfeited A/c Dr. 300
To Equity Share Capital A/c (Being 300 shares reissued at Rs 9 per share fully paid up)
Share Forfeited A/c Dr. 550
To Capital Reserve A/c (Being profit on reissue transferred to capital reserve)
In simple words: When shares are forfeited, the cash received or owed is recorded. The forfeited shares are later reissued at a set price. Any profit made from selling them at a higher price goes to the capital reserve account.

Exam Tip: Track forfeiture in separate entries for each payment stage, clearly showing which shares are lost and which amounts are due. When reissuing, calculate profit or loss by comparing the reissue price with amounts originally paid.

Question 4. KS Ltd. invited applications for issuing 1,60,000 equity shares of Rs 10 each at a premium of Rs 6 per share. The amount was payable as follows: On Application Rs 4 per share (including premium Rs 1 per share), On Allotment Rs 6 per share (including premium Rs 3 per share), On First and Final Call – Balance. Applications for 3,20,000 shares were received. Applications for 80,000 shares were rejected and application money refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess money received with applications was adjusted towards sums due on allotment. Jain holding 800 shares failed to pay the allotment money. His shares were forfeited immediately after allotment. Afterwards the final call was made. Gupta who had applied for 1,200 shares failed to pay the final call. This shares were also forfeited. Out of the forfeited shares, 1,000 shares were reissued at Rs 8 per share fully paid up. The re-issued shares included all the forfeited shares of Jain.
Answer: Journal entries for KS Ltd.:
Bank A/c Dr. 12,80,000
To Equity Share Application A/c (Being application money received on 3,20,000 shares)
Equity Share Application A/c Dr. 12,80,000
To Equity Share Capital A/c 4,80,000
To Securities Premium Reserve A/c 1,60,000
To Bank A/c 3,20,000
To Equity Share Allotment A/c 3,20,000
(Being application money transferred to share capital account and securities premium reserve, excess refunded and adjusted)
Equity Share Allotment A/c Dr. 9,60,000
To Equity Share Capital A/c 4,80,000
To Securities Premium Reserve A/c 4,80,000
(Being share allotment made due)
Bank A/c Dr. 6,36,800
To Equity Share Allotment A/c (Being allotment money received except on 800 shares and advance received on applications adjusted)
OR
Bank A/c Dr. 6,36,800
Calls-in-Arrears A/c Dr. 3,200
To Equity Share Allotment A/c (Being allotment money received except on 800 shares)
Equity Share Capital A/c Dr. 4,800
Securities Premium Reserve A/c Dr. 2,400
To Shares Forfeited A/c 4,000
To Equity Share Allotment A/c/Calls-in-Arrears A/c 3,200
(Being 800 shares of Jain forfeited after allotment)
Equity Share First and Final Call A/c Dr. 9,55,200
To Equity Share Capital A/c 6,36,800
To Securities Premium Reserve A/c 3,18,400
(Being first and final call due on 1,59,200 shares)
Bank A/c Dr. 9,50,400
To Equity Share First and Final Call A/c (Being first and final call money received except on 800 shares)
OR
Bank A/c Dr. 9,50,400
Calls-in-Arrears A/c Dr. 4,800
To Equity Share First and Final Call A/c (Being first and final call money received except on 800 shares)
Equity Share Capital A/c Dr. 8,000
Securities Premium Reserve A/c Dr. 1,600
To Shares Forfeited A/c 4,800
To Equity Share First and Final Call/Calls-in-Arrears A/c 4,800
(Being 800 shares of Gupta forfeited)
Bank A/c Dr. 8,000
Share Forfeited A/c Dr. 2,000
To Equity Share Capital A/c (Being 1,000 shares reissued for Rs 8 per share fully paid up)
Share Forfeited A/c Dr. 3,200
To Capital Reserve A/c (Being gain on reissue of forfeited shares transferred to capital reserve account)
In simple words: When applications exceed shares available, excess money is refunded. Shares are allotted on a pro-rata basis. If shareholders fail to pay at any stage, their shares are forfeited. When reissued at a profit, that gain moves to the capital reserve.

Exam Tip: Carefully separate capital account debits from premium reserve debits. Track each forfeiture stage separately and use the "Shares Forfeited" account to capture the original paid amount before reissue.

Question 5. Record the Journal entries for forfeiture and reissue in the following cases: (a) X Ltd. forfeited 200 shares of Rs 100 each, Rs 70 called up on which the shareholders had paid application and allotment money of Rs 50 per share. Out of these, 150 shares were reissued to Naresh as Rs 70 per share paid up for Rs 80 per share. (b) Y Ltd. forfeited 180 shares of Rs 10 each, Rs 8 called up, issued at a premium of Rs 2 per share to 'R' for non-payment of allotment money of Rs 5 per share (including premium). Out of these, 160 shares were reissued to Sanjay as Rs 8 called up for Rs 10 per share fully paid up.
Answer: Journal Entries for share forfeiture and reissue:
(a) (i) Share Capital A/c Dr. 14,000
To Share Forfeited A/c 10,000
To Calls-in-Arrears A/c 4,000
(Being forfeiture of 200 shares for non-payment of money)
(ii) Bank A/c Dr. 12,000
To Share Capital A/c 10,500
To Securities Premium Reserve A/c 1,500
(Being reissue of 150 equity shares of Rs 70 each, at premium of Rs 10 each)
(iii) Share Forfeited A/c Dr. 7,500
To Capital Reserve A/c 7,500
(Being amount transferred to capital reserve)
(b) (i) Share Capital A/c Dr. 1,440
Securities Premium Reserve A/c Dr. 360
To Share Forfeited A/c 900
To Calls-in-Arrears A/c 900
(Being forfeiture of 180 shares for non-payment of share allotment money)
(ii) Bank A/c Dr. 1,600
To Share Capital A/c 1,280
To Securities Premium Reserve A/c 320
(Being reissue of 160 forfeited shares)
(iii) Share Forfeited A/c Dr. 800
To Capital Reserve A/c 800
(Being amount of share forfeiture of 160 shares transferred to capital reserve)
In simple words: When shares are forfeited, the original share capital and premium amounts are removed. When reissued at a fresh price, the difference between the old and new amounts goes to the capital reserve as a gain.

Exam Tip: Always track the called-up amount separately from premium. The forfeiture reduces capital and premium based on what was actually paid. Any gain on reissue flows to capital reserve, not to the premium reserve.

Question 6. JJK Ltd. invited applications for issuing 50,000 equity shares of Rs 10 each at par. The amount was payable as follows: On Application: Rs 2 per share, On Allotment: Rs 4 per share, On First and Final Call: Balance Amount. This issue was oversubscribed three times. Applications for 30% shares were rejected and money refunded. Allotment was made to the remaining applicants as follows:

Excess money paid by the applicants who were allotted shares was adjusted towards the sums due on allotment. Deepak, a shareholder belonging to Category I, who had applied for 1,000 shares, failed to pay the allotment money. Raju, a shareholder holding 100 shares, also failed to pay the allotment money. Raju belonged to Category II. Shares of both Deepak and Raju were forfeited immediately after allotment. Afterwards, first and final call was made and was duly received. The forfeited shares of Deepak and Raju were reissued at Rs 11 per share fully paid up.
Answer: Journal entries for JJK Ltd.:
Bank A/c Dr. 3,00,000
To Equity Share Application A/c (Being application money received on 1,50,000 shares)
Equity Share Application A/c Dr. 3,00,000
To Equity Share Capital A/c 1,00,000
To Bank A/c 90,000
To Equity Share Allotment A/c 1,10,000
(Being application money transferred to capital, excess refunded and adjusted to allotment)
Equity Share Allotment A/c Dr. 2,00,000
To Equity Share Capital A/c (Being allotment due)
Bank A/c Dr. 2,00,000
To Equity Share Allotment A/c (Being allotment money received)
Equity Share Capital A/c Dr. 4,000
To Share Forfeited A/c 1,100
To Calls-in-Arrears A/c 2,900
(Being 1,100 shares of Deepak forfeited)
Equity Share Capital A/c Dr. 400
To Share Forfeited A/c 100
To Calls-in-Arrears A/c 300
(Being 100 shares of Raju forfeited)
Equity Share First and Final Call A/c Dr. 2,00,000
To Equity Share Capital A/c (Being first and final call due)
Bank A/c Dr. 1,95,600
Calls-in-Arrears A/c Dr. 4,400
To Equity Share First and Final Call A/c (Being first and final call money received)
Bank A/c Dr. 2,750
Share Forfeited A/c Dr. 550
To Equity Share Capital A/c (Being 1,200 shares reissued at Rs 11 per share fully paid up)
Share Forfeited A/c Dr. 1,100
To Capital Reserve A/c (Being gain on reissue of forfeited shares transferred to capital reserve)
In simple words: Applications are received and money is collected in stages. When allotment is made on a pro-rata basis, excess application money is used to pay part of the allotment call. If shareholders fail to pay at any stage, their shares are forfeited and later reissued. Any profit on the reissue is credited to the capital reserve.

Exam Tip: In oversubscribed issues, carefully calculate pro-rata allotment and track excess application money adjustments. Maintain separate forfeiture records for each shareholder to verify the total shares reissued match the total forfeited shares.

Question 7. Give Journal entries to record the following transactions on forfeiture and reissue of shares and open Share Forfeited Account in the books of the company: I. Ltd. forfeited 470 Equity Shares of Rs 10 each issued at premium of Rs 5 per share for non-payment of allotment money of Rs 8 per share (including share premium Rs 5 per share) and the first and final call of Rs 5 per share. Out of these 60 Equity Shares were subsequently reissued at Rs 14 per share.
Answer:
Journal Entries (in the books of the company)

In simple words: When shares are forfeited (cancelled) because shareholders don't pay their dues, we remove those shares from the capital account and put them in a special "Shares Forfeited" account. When those forfeited shares are sold again later, any profit made on the reissue goes to a capital reserve, not to profit and loss.

Exam Tip: Key points to remember: forfeited shares go at their original contributed value, gains on reissue transfer to Capital Reserve (never to profit), and the Share Forfeited Account balances with contributions from forfeited shares and charges from reissued shares.

Question 8. Petromax Ltd. issued 50,000 shares of Rs 10 each at a premium of Rs 2 per share payable as Rs 3 on application, Rs 5 including premium on allotment and the balance in equal instalments over two calls. Applications were received for 92,000 shares and the allotment was done as under: (A) Applicants of 40,000 shares - Allotted 30,000 shares; (B) Applicants of 40,000 shares - Allotted 20,000 shares; (C) Applicants of 12,000 shares - Nil. Suresh, who had applied for 2,000 shares (Category A) did not pay any money other than application money. Chander, who was allotted 800 shares (Category B) paid the call money due along with allotment. All other allottees paid their dues as per schedule. Pass necessary Journal entries in the books of Petromax Ltd. to record the above.
Answer:
In the books of Petromax Ltd. Journal

Working Notes:
(1) Money not received from Suresh on Allotment:
(i) Number of shares allotted to Suresh = 30,000/40,000 x 2,000 = 1,500 Shares.
(ii) Application money paid by Suresh = 2,000 x Rs 3 = Rs 6,000.
(iii) Application money required = 1,500 x Rs 3 = Rs 4,500.
(iv) Excess application money adjusted on allotment = [(ii) Rs 6,000 - (iii) Rs 4,500] = Rs 1,500

(v) Money due from Suresh on allotment = 1,500 x Rs 5 = Rs 7,500
Less: Excess application money adjusted (iv) = Rs 1,500
Money due from Suresh on allotment = Rs 6,000

(2) Money received on Allotment:
Total amount due on allotment = Rs 2,50,000
Less: Excess application money adjusted = Rs 90,000
= Rs 1,60,000

Less: Money not paid by Suresh = Rs 6,000
= Rs 1,54,000

(3) Calls-in-Advance on 800 shares of Chander = 800 x Rs 4 = Rs 3,200.
(4) Total money received on Allotment: = Rs 1,54,000 + Rs 3,200 = Rs 1,57,200

In simple words: When different groups of applicants get different allotments, we calculate pro-rata allotment and adjust any excess application money. Money not paid by some shareholders becomes arrears, and money paid in advance towards future calls is held separately. Each payment must be properly credited to the right share capital call account.

Exam Tip: When allotment is on pro-rata basis, always calculate the exact number of shares allotted to each applicant, adjust excess application money received, track calls-in-arrears and calls-in-advance separately, and match all payments to the right call stages.

Question 9. Hema Ltd. invited applications for issuing 30,000 Equity shares of Rs 100 each at a premium of Rs 20 each. The amount was payable as follows: On application and Allotment Rs 40 (including premium Rs 10) per share. On First Call Rs 50 (including premium Rs 10) per share. On Second and Final Call - Balance. Applications for 75,000 shares were received. Applications for 15,000 shares were rejected and the money received from them was refunded. Shares were allotted on pro rata to the remaining applicants. All calls were made. A who had applied for 2,000 shares failed to pay the first call and second and final call on the shares allotted to him. B who was allotted 1,000 shares failed to pay the second and final call. The shares of both A and B were forfeited. The forfeited shares were reissued at Rs 160 fully paid.
Answer:
Journal Entries

Working Notes:
1. Calculation and adjustment of amount received on application:

Total Applications Received = 75,000 shares
Applications Rejected = 15,000 shares
Balance = 60,000 shares

Pro rata Allotment made on 60,000 shares

Excess money received on Application and Allotment = 30,000 shares x 40 = Rs 12,00,000
Money to be refunded = 15,000 Shares x 40 = Rs 6,00,000

2. No. of Shares Allotted to A = 2,000 x 30,000/60,000 = 1,000 Shares

Application and Allotment money received from A = 2,000 shares x Rs 40 = Rs 80,000
Less: Amount utilised for application and allotment = Rs 40,000
Excess money retained for first call (80,000 - 40,000) = Rs 40,000
Amount of first call due from A = 1,000 shares x Rs 50 = Rs 50,000
Less: Amount received in advance for first call with application = Rs 40,000
Amount not received of first call (50,000 - 40,000) = Rs 10,000

3. Calculation of amount received on share first call:

Total amount due on First call = 30,000 shares x Rs 50 = Rs 15,00,000
Less: Amount adjusted on first call received in advance = Rs 12,00,000
= Rs 3,00,000
Less: Amount adjusted on first call not received from A = Rs 10,000
= Rs 2,90,000

Q. 10. Sunstar Ltd. invited applications for issuing 2,00,000 equity shares of Rs 50 each. The amount was payable as follows:
On Application - Rs 15 per share
On Allotment - Rs 10 per share
On First and Final Call - Rs 25 per share
Applications for 3,00,000 shares were received. Allotment was made to the applicants as follows:

In simple words: When a company issues shares in multiple stages (application, allotment, and calls), we track money received at each stage and keep it separate. When a shareholder fails to pay dues on certain calls, we stop crediting them and transfer their share capital to a forfeited shares account. If those forfeited shares are sold later at a gain, the gain goes to a capital reserve account.

Exam Tip: Always remember that when shares are forfeited, the amount already received stays credited but unpaid amounts are reversed. On reissue, gains go to Capital Reserve (not P&L). The pro-rata allotment formula is: (Shares Applied For by Group / Total Shares Applied) x Total Shares Allotted.